Finance

Pension plan funding has improved steadily since the Great Recession, according to Aon data.
A pension’s so-called funded ratio is one gauge of plan health. It measures a plan’s assets versus the future payouts it must make to beneficiaries.
A better funded status makes it more likely companies will keep their pensions active and reduces the risk of benefit cuts for some workers, experts said.

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Pension plans for the largest U.S. companies are at their healthiest in more than a decade — and that’s largely good news for the workers who participate in such plans, said retirement experts.
Public companies in the S&P 500 stock index had an average pension “funded ratio” of 102% as of Sept. 21, according to data tracked by financial services firm Aon. That’s the highest level since at least the end of 2011, when the ratio was around 78%.

A funded ratio is one way to gauge pension health. It measures a company’s pension assets versus its liabilities. In other words, it assesses the money a pension has on hand versus the funds a company needs to pay future pension income to workers.
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A funded level of 100% or more means it currently has the assets on hand to meet it future obligations.
“This is a really good thing,” Byron Beebe, global chief commercial officer for Aon, said of the current funding level. “It’s at the highest it’s been in a really long time.”
Of course, pension funding is merely a “financial snapshot … at a single moment,” according to the American Academy of Actuaries. It can change based on factors such as the health of the U.S. economy. Each plan is unique, meaning funded status alone isn’t the only gauge for pension health, it said.

Why pension funding is important for workers

Pensions in the private sector have become rarer over the decades as companies have replaced them with 401(k)-type plans.
Pension plans are also known as “defined benefit” plans, since workers’ future benefit is defined according to a formula based on factors such as tenure and salary.
At their peak, in 1983, there were 175,000 defined-benefit plans in the private sector, according to U.S. Department of Labor data. By 2020, that number had declined to about 46,000.

Many of those plans are “frozen” and no longer allow workers to accrue benefits, however.
As a result, there are fewer “active” participants who continue to earn pension credits. In 1975, there were 27.2 million active participants. By 2019, the number had fallen by more than half, to 12.6 million, according to the Congressional Research Service.
In total, there are about 32 million participants in corporate pensions, including both active participants and those no longer accruing benefits, according to the Labor Department.
Having a healthy pension plan makes it more likely companies with active plans will hold onto them and won’t terminate or freeze them, Beebe said.

This is a really good thing. It’s at the highest it’s been in a really long time.

Byron Beebe
global chief commercial officer for Aon

In extreme cases, underfunding can also lead to a benefit cut, experts said.
Companies with failed pensions may transfer their obligations to the federal Pension Benefit Guaranty Corp., which serves as a financial backstop that guarantees pension benefits.
However, beneficiaries aren’t assured to get their fully promised payout. That’s because PBGC insures benefits up to a limit, based on age. Most pensioners aren’t affected by this limit, PBGC said, but those who are would get a benefit reduction.  

Why plan funding has improved

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Corporate pension funding languished after the 2008 financial crisis.
The recent improvement is largely attributable to three factors: a rise in interest rates, strong stock performance and policy changes to how some companies fund their plans, said John Lowell, partner at October Three, a pension consulting firm.  
Due to how pension liabilities are calculated, having a higher interest rate on bonds generally means companies don’t have to contribute as much money to their pensions today to satisfy future benefits, Lowell said.
The insurance premiums companies pay to the PBGC also generally rise according to a plan’s level of underfunding, and those premiums have increased significantly, Lowell said. As a result, companies are more proactive about making contributions to their plans to ensure they’re fully funded, Lowell said.    
Aside from a few periods such as 2022, asset classes such as stocks “have been performing well for a solid 10 years or more,” boosting plan assets, Lowell said. The S&P 500 lost more than 19% in 2022, its worst showing since 2008.
Companies have also adopted investment strategies that fluctuate less with the whims of the investment markets, said Beebe at Aon. In a simple sense, with a portion of the portfolio, they buy bonds whose income matches that of future pension promises, offering more predictability, he said. More

On a Typical evening Zhengzhou’s manufacturing district should be teeming with workers heading back to their dormitories. For more than a decade the city of 13m in central China has been home to Foxconn employees who assemble iPhones in a local megafactory—meaning activity at hole-in-the-wall eateries and dank internet cafes provides an informal gauge of the health of the local economy. But now one of the main dormitory areas is vacant. Labourers are stripping out what remains of internet cafés and hauling off sofas that once furnished dorms. Many workers fled, never to return, in October last year, escaping a lockdown that had confined them to their dorms, sometimes ten to a room, for weeks on end.Zhengzhou has become one of China’s most problematic cities. gdp per person in Henan province, of which it is the capital, sits at 27% below the national average. The city’s difficulties—including a lack of work, falling property prices and banking instability—are acute examples of those facing China at large. They also emerged earlier than those in much of the rest of the country. As such, Zhengzhou has become a laboratory for potential remedies, some of which have since been rolled out on a national level.China’s recent economic data, released on September 15th, indicates that the economy is at least starting to stabilise. The annual rate of growth in industrial production rose to 4.5% in August. Retail sales were up by 4.6%. Both beat analysts’ expectations. But the floor total area of new homes under construction fell by 7.1% in the first eight months of the year, continuing its decline. And even if the situation has begun to stabilise, Zhengzhou’s experience shows how hard it will be for China to truly escape from its economic malaise—and how long any recovery will take.The region’s troubles began to accelerate in 2020, with the default of Yongcheng Coal, a local energy firm. The next year floods swept the city, submerging a metro line and killing almost 400 people. Local officials, including the party secretary, were sacked for hiding the true number of casualties. In 2022 bank depositors around the country discovered they could not withdraw their funds from several banks in the province, leading to weeks of protests outside the Zhengzhou branch of China’s central bank. The city also experienced tough treatment during covid-19. Locals shudder at the memory of a four-month lockdown endured before the abandonment of “zero-covid” policies.As one woe after another has been visited upon the city, its property market has worsened. China has been in the throes of a real-estate crisis since 2021. Developers have come up short on the cash needed to finish flats. And because most buyers pay upfront, they have found themselves taking out mortgages without receiving homes. In July last year dissidents began tracking mortgage boycotts—and found Zhengzhou to be at the centre. By some counts, 600,000 local homebuyers have bought flats in troubled developments. cric, a research firm, estimates that one in every 13 households has been affected.The situation has forced local policymakers to act. Henan’s plans to ease joblessness have included a 100-day, military-style campaign, which began in May and recently came to an end. It aimed for “zero-dynamic clearing” of youth unemployment, borrowing language from the zero-covid policy. Staff at universities were told to identify youngsters who were struggling to find jobs and to connect them with public institutions, state-owned enterprises and even employers in the countryside. Since the campaign has only just concluded, the results are not yet clear—but it seems unlikely to have discovered thousands of new employment opportunities. With a poor job market and 870,000 new university graduates this year alone, Henan’s public servants would have had to have been working overtime to have put even the slightest dent in the problem.Other reforms are a little more thought-through. In March Zhengzhou became the first big city to drop restrictions on buying second homes, in an attempt to prop up demand. Last month it led the way again as the first city to launch reforms that instructed banks to lower mortgage rates, exempted new graduates from deed taxes and handed out subsidies of up to 30,000 yuan ($4,100) for home purchases for families with three children. It also lifted a rule that banned people from reselling their homes within three years of purchase.By early September work appeared to have restarted on some of the city’s largest stalled property developments. One of these, named Qifucheng, had been paused since 2019. The development, with more than 6,000 residential units, has been called Zhengzhou’s largest lanweilou, or abandoned building site. Last year the developer behind it was accused of putting a few workers on site in order to appear as if work was taking place, perhaps to avoid being sued. Now trucks are moving in and out of the site, and many workers are on the job. If work on similar projects resumes, people looking for new flats might even shake off their distrust of the sector. This will take time, however. Property prices in the city are still heading in the wrong direction—they fell by 0.5% month-on-month in August—which bodes ill for a rapid recovery in other second-tier cities.Perhaps Zhengzhou’s most daring reform has been to relax the constraints of the hukou, a household-registration system. A year ago city officials announced that migrants with local jobs and residences would qualify for a registration necessary to buy homes or access education, abandoning a system that has created a two-tier society across China. In theory, ditching the hukou could relieve many of the city’s problems. Talented young people looking to live in a big, central city might move to Zhengzhou. Some might even launch startups, attracting workers from around the country. All of this should help boost property prices. Yet since policymakers introduced the reform, other provinces have made similar moves, increasing competition for potential arrivals. In August, for instance, Jiangsu, a prosperous coastal region, said that it would relax hukou requirements for many of its cities.After months of delay, the central government has begun to show that it is taking the country’s economic stagnation seriously. Meanwhile, the central bank has loosened monetary policy. But questions remain over whether China’s leaders will be able to solve local crises, which is necessary if the country is to raise its long-run growth. So far, the message has been that local leaders will need to solve many of their own problems. It is unfortunate, then, that Zhengzhou’s experience suggests that doing so will be a struggle. ■ More

A farmer cutting a cocoa pod to collect the beans inside on a farm in Azaguie, Ivory Coast, on Friday, Nov. 18, 2022.
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Surging prices for soft commodities, from orange juice to live cattle, are complicating the inflation picture. 
A host of agricultural commodities have climbed in recent months, driven by weather-related damage and rising climate risks around the globe, resulting in tighter supplies. The higher prices add another layer of pain to consumers’ wallets at a time when stubborn core inflation, excluding food and energy, stood at 4.3% in August.

Futures contracts on orange juice, live cattle, raw sugar and cocoa each hit their highs for the year this month. All are in “supply-driven bull markets right now,” said Paul Caruso, director of commodity investments at Ancora.
The S&P GSCI Softs index, a sub-index of the S&P GSCI commodities index that measures only soft commodities, has jumped more than 18% so far this year.

Orange juice has shot up due to a short global citrus supply and hurricanes last fall that hit Florida, the primary producer of orange juice for the U.S. Major exporters, including Brazil and Mexico, also lowered their estimated orange crop yields for the year due to warmer temperatures making harvests more difficult.
The juice futures market reached a record $3.50 per pound this month. Live cattle futures similarly hit a record, reaching $1.9205 per pound. 
Meat prices have been driven by shrinking U.S. cattle herds, continued beef demand, plus higher input costs for labor and fuel. A prolonged drought in the Midwest earlier this year damaged grasslands and hay crops, forcing some farmers to cull their herds. Data from the U.S. Department of Agriculture forecasts declining supplies this year and next, and potentially through 2025 and 2026, before supplies are rebuilt.It’s not just breakfast or lunch that has gotten more expensive — so has dessert.

Raw sugar and cocoa prices have soared in recent months. Sugar futures reached 27.62 cents per pound last week, the highest since 2012, while cocoa futures soared to $3,763 per metric ton this month, also the highest level in more than a decade.
Prices for sugar spiked earlier this year as rising demand combined with downward crop revisions from key producing countries, such as India and Thailand, resulting from extreme weather. India, for example, is the world’s second largest sugar producer after Brazil.
“Soft commodities in particular are very fragile and very sensitive to weather change,” which can disrupt production, said Darwei Kung, head of commodities and natural resources at DWS. “That’s why we’re seeing the price go up, and there’s no short term solution because there’s only so much people can produce. And that’s not sensitive to demand as much as it is to the production side.”
Given that food and energy are not included in calculations of core inflation, Kung added that consumers may experience higher daily prices than are taken into account by central bank policymakers. That could create a “bifurcation” of perspectives around inflation that’s tougher on consumers, at least in the short-term, he said.
Shoppers are bearing the brunt of the higher prices as the world’s largest food companies try and pass along their rising input costs.
“It’s certainly not the time to talk about deflation [or] price decreases because of the significant decrease that we have seen in gross margin…We still see a high level of input cost inflation,” Nestlé’s chief financial officer François-Xavier Roger said at Barclays Consumer Staples Conference earlier this month.
The Nestlé executive noted increased costs for sugar, cocoa and Robusta beans for coffee, adding that, “obviously, some other items have declined like energy, like transportation, but net-net, still a few billions up in terms of input cost inflation in 2023.”
Unilever’s chief financial officer Grame David Pitkethly similarly noted at the Barclays conference that the company — maker of Ben & Jerry’s, Magnum and Breyers ice cream — is still seeing inflation in its nutrition and ice cream categories. In late July, Unilever reported a 12.6% rise in “underlying prices” within nutrition and 11.5% within ice cream, the latter being Unilever’s most discretionary category where “private label is attractive to the consumer,” Pitkethly said. 
“We’ve got lots and lots of inflation and pricing…the consumer feels that pricing,” the CFO said.
To be sure, prices of other agricultural commodities, such as corn and wheat, have fallen from their highs earlier this year, brightening the outlook for consumers. 

Benchmark soybean futures fell to a one-month low last week after the USDA reported weaker-than-expected soy export sales. Corn and wheat hit their year-to-date highs in January and February, and have fallen since.
Some analysts are counting on higher interest rates and slower economic to curb consumer appetites.
“I think that volatility persists as we understand what the harvest is, but as important as the harvest is, it’s all about understanding the demand,” said Jeff Kilburg, founder and CEO of KKM Financial.
If demand suffers, it might even foreshadow a pullback in stocks, Kilburg said. More

Striking members of the Writers Guild of America picket with striking members of SAG-AFTRA, the actors guild, outside Paramount Studios in Los Angeles, Sept. 18, 2023.
Mario Tama | Getty Images

Check out the companies making headlines before the bell.
AstraZeneca — Shares rose 1.4% after Jefferies upgraded the stock to buy from hold. The upgrade comes after one of its breast cancer therapies, in joint development with Daiichi Sankyo, came out with positive results in a late-stage trial on Friday. 

Urban Outfitters, Foot Locker  — Shares of Urban Outfitters fell 4%, while Foot Locker slid 2.9% before the bell after Jefferies downgraded the stocks to hold from buy. Jefferies said the companies could be affected by pullbacks on consumer spending. 
Dow — Shares of the petrochemicals company rose 1.6% on Monday during premarket trading. JPMorgan upgraded the stock to overweight from neutral, citing potential upside from higher oil prices. 
Nike — The athletic retailer slipped 1.6% after a downgrade from Jefferies to hold from buy. The firm cited wholesale pressures and macro headwinds in China. 
Opendoor Technologies — Shares of the real estate company fell more than 6% after Citi cut its price target on Opendoor to $2.70 per share from $3.90. Citi cited the low number of preexisting homes on the market as a reason to be concerned about Opendoor. Because the stock trades at less than $3 per share, small moves in nominal terms can appear as large percentage changes.
Chinese e-commerce stocks — U.S.-traded shares of JD.com and PDD Holdings lost 3.1% and 2.3%, respectively, as sentiment around China’s economy worsened. A senior central bank member said the country has limited room for further monetary easing, calling for structural reforms to the economy. 

Media stocks — Media companies saw their shares rise after writers and studios reached a preliminary labor agreement. Paramount and Warner Bros Discovery each rose about 2%. Shares of Amazon and Disney also ticked up, 0.8% and 0.6%, respectively, on the news.
HP — Shares of the computer company fell about 3% after Berkshire Hathaway sold 4.8 million shares, or approximately $130 million, of HP. 
Sealed Air — The food packaging company jumped 2.7% after Citi upgraded shares to buy from neutral. Analyst Anthony Pettinari cited a discounted valuation relative to historical averages and the potential for material portfolio transformation actions.
Nio — The U.S.-traded shares of the Chinese electric vehicle maker fell nearly 6%, on news that the company is considering raising $3 billion from investors.
— CNBC’s Alex Harring and Jesse Pound contributed reporting. More

Chinese telecommunications giant Huawei didn’t reveal any details about its new phone or reported advanced chip breakthrough during a high-profile launch event.
Instead, the company teased two new electric cars — its first sedan and a high-end SUV — and launched new wireless earbuds, among other products.
Many online viewers of the launch event appeared disappointed and left many comments asking for details about the phone.

Customers experience the new Mate 60 Pro smartphone at a Huawei-branded store in Shanghai, China, September 5, 2023.
Nurphoto | Nurphoto | Getty Images

BEIJING — Chinese telecommunications and smartphone giant Huawei didn’t reveal any details about its new phone or reported advanced chip breakthrough during a high-profile launch event Monday.
Instead, the company teased two new electric cars — its first sedan and a high-end SUV — and launched new wireless earbuds, among other products. Huawei partners with an auto manufacturer to sell cars under the Aito brand.

The earbuds, priced around 1,499 yuan ($205) include Huawei’s Kirin A2 chip, the company said.
The product releases were part of Huawei’s fall season launch event, which was livestreamed Monday afternoon in Mandarin.
The phone’s absence left many internet fans disappointed, despite indications early in the event from its host Richard Yu that the company would not disclose further details. Yu is executive director and CEO of Huawei’s consumer business group, and heads car-related operations.

Still, many viewers, especially on the Bilibili video platform, left comments asking for details about the phone.
Huawei’s glitzy product launch — at times spilling over into nationalist fervor from the audience online and in-person — had started with an orchestral and choral performance of a song titled “My Dream” in Chinese. It also included a short speech by Hong Kong celebrity Andy Lau around Huawei’s launch of a luxury watch design.

But the attempt to portray a feel-good mood about Huawei’s — and China’s — tech capabilities didn’t result in a tangible announcement at the high-profile event.
The company on Monday released a new version of its smart watch, a new tablet it claims is lighter and thinner than the iPad and a stylus that connects with the tablet using Huawei’s bluetooth-like NearLink tech.
Huawei’s silence on its new phone comes as Apple’s iPhone 15 started deliveries in China on Friday.

A chip production breakthrough?

About a month ago, Huawei quietly released its latest smartphone — the Mate 60 Pro — which reviews indicate offers download speeds associated with 5G, thanks to an advanced semiconductor chip.
The phone’s debut indicated Huawei is able to use high tech processes despite U.S. restrictions.
Analysis by TechInsights found the Kirin 9000s chip inside Huawei’s Mate 60 Pro has a processor that was manufactured by China’s chipmaking giant Semiconductor Manufacturing International Corporation using an advanced 7 nanometer process.
Previously, that 7nm process required an EUV lithography machine from Dutch company ASML, which has also started restricting sales to China. It’s not clear whether older machines or alternative procurement processes were involved with the latest chip production.
When asked about TechInsights’ findings, Huawei was not available for comment.
Huawei’s consumer business revenue has halved under pressure from U.S. sanctions that cut the company off from critical smartphone tech such as semiconductors and Google software.
The Trump administration started restricting Huawei’s access to the tech in 2019.
The U.S. has maintained the Chinese telecommunications giant is a national security risk due to alleged links to the Chinese Communist Party and the country’s military. Huawei has repeatedly denied the existence of any such risk.
This year, Huawei said it expected to launch its flagship consumer products on a “normal” schedule again.
— CNBC’s Arjun Kharpal contributed to this report. More

Dawn Capital, one of Europe’s biggest backers of business software companies, raised $700 million in two new funds, defying the odds as venture capital investment in tech startups has slumped.
The London-based VC firm is one of the most prominent tech investors in Europe, with a portfolio that includes the likes of PayPal-owned payment firm iZettle and Visa-owned open banking startup Tink.
The $700 million will be invested from two funds: a $620 million early-stage fund and an $80 million “opportunities” fund for growth-stage firms in Dawn Capital’s existing portfolio.

Malte Mueller | Fstop | Getty Images

Dawn Capital, one of Europe’s biggest backers of business-to-business software companies, raised $700 million in two new funds — doubling down on its bid to find technology champions in the region at a time when venture capital funding for tech startups has dwindled.
The London-based VC firm is one of the most prominent tech investors in the continent, with a portfolio that includes the likes of Swedish online payments firm iZettle, which was acquired by PayPal for $2.2 billion in 2018, and Swedish open banking company Tink, which Visa acquired for 1.8 billion euros ($1.9 billion) in 2022.

Hannah Gubbins, a newly promoted partner at Dawn Capital, said raising the new funds in a time when private startup company valuations have tanked and investor sentiment toward technology has soured was far from easy — but that it came down to deep relationships with institutional investors built up over years.
“For us, the LP [limited partner] side, even those that weren’t building programs in venture where lots of people felt historically, 18 months ago, they ought to be allocating a lot more to venture,” Gubbins told CNBC in an interview.
“Suddenly with everything with the markets and the denominator effect, their private book was overallocated even if technically by their own benchmarks they weren’t. That meant a lot of funds could only reup with existing managers or those with high convictions.”
“It’s the same as in those cycles where there is still capital out there, there are still investors investing. Investors are excited to be investing in this market,” Gubbins added. “There’s some of the best companies, some of the best vintages have come out of the dotcom [bubble], out of the global financial crisis. They know that, they sit on the data.”
Dawn Capital plans to invest in 20 companies with the new funds, which is the firm’s fifth to date. Dawn V will be split into two distinct funds: a $620 million early-stage fund for Series A and Series B investments, and an $80 million “opportunities” fund aimed at backing winners in Dawn Capital’s portfolio that may go on to exit through an initial public offering or takeover later in their business lifecycle.

Dwindling VC funding

Venture capital investment has fallen off a cliff as investors reevaluate their allocations amid higher interest rates and rising inflation.
With rates at multi-year highs, innovative, growth-oriented companies that are making losses and that take longer to make a return on their investments have become less attractive. Stodgy, profitable firms with more stable revenue streams, on the other hand, are seeing greater interest.
Investors have been watching the initial public offerings of firms like U.K. chip designer Arm and U.S. grocery delivery firm Instacart for signs of a comeback in tech.
Tech boomed in 2020 and 2021 as the Covid-19 pandemic led to a surge in the use of online platforms for just about everything from shopping to remote work. Ultra-low interest rates from central banks aimed at propping up the economy also worked to ensure it was much easier to raise money. But all that has changed dramatically in the past year or so.
Gubbins said she doesn’t have a crystal ball for when the IPO market will officially open up again. However, she said, Dawn Capital is following the debuts of Arm and Instacart closely as it searches for signs of when the dust will settle on the public listings front.
Gubbins stressed that an IPO isn’t the only exit path available to founders. She highlighted the acquisition of LeanIX, an enterprise architecture management software company in Dawn’s portfolio, by German software titan SAP as an example of European technology firms seeing successes when it comes to exits.

Artificial intelligence

One area defying the declines in tech is artificial intelligence — where investment is booming. AI has had billions of dollars’ worth of investments flowing into companies, particularly firms working on so-called “foundational models” capable of generating new content from written prompts, such as OpenAI, Anthropic and Cohere.
Gubbins said that AI has proven a standout part of conversations with limited partners. However, the focus for Dawn Capital, she said, remains investing in a broad range of business-to-business software companies in fields ranging from fintech to security and infrastructure.
“We’re doubling down on what we’ve always done,” she said. “AI is absolutely one of the areas we’re looking at. Both investing in AI companies but also as something that’s disrupting every sector and company.” More

A visitor views a titanium hybrid 2020 Ford Escape FWD small SUV at the Canadian International Auto Show in Toronto, Ontario, in Canada, Feb. 18, 2020.
Chris Helgren | Reuters

Check out the companies making headlines in midday trading.
Ford — Shares popped about 2% in midday trading after a CNBC report said both Ford and the United Auto Workers union are making headway on negotiations as the strike continues.

Squarespace — The website builder popped 4.2% after UBS initiated coverage of the stock at a buy. UBS said the company has a solid product suite and growing brand awareness.
Scholastic — The publishing and media company stock plummeted 13.2% after reporting an earnings miss on the top and bottom line. Scholastic reported an adjusted loss of $2.20 per share on $228.5 million in revenue, while analysts polled by FactSet forecast a loss of $1.35 per share and $268.79 million in revenue.
Arm Holdings — The recently listed chip design stock lost 1.6% during Friday’s trading session after Susquehanna initiated a neutral rating on the company in a Friday note. Shares popped nearly 25% during its Nasdaq debut Sept. 14 but are now trading just above the stock’s $51 initial public offering price.
Seagen — Shares of the biotech firm rose 3.5% after the company reported positive results from a clinical trial for patients with previously untreated bladder cancer. The results showed the treatment improved both overall survival and progression-free survival, compared with chemotherapy.
Deere — Shares of the farming equipment manufacturer fell 1.7% after Canaccord Genuity downgraded shares to hold from buy. The firm mentioned headwinds including slowing growth for large agricultural equipment and normalizing dealer inventories.

Chinese e-commerce stocks — U.S. shares of both PDD and Alibaba added roughly 4% and 5%, respectively, while JD.com stock climbed 2%. A report from Bloomberg said earlier Friday that the Chinese government is considering loosening foreign investment cap rules in publicly traded domestic companies.
Activision Blizzard — Shares of the video gaming firm added about 2% after U.K. regulators said a new deal proposal from Microsoft cleared major antitrust worries.
— CNBC’s Pia Singh, Alex Harring, Hakyung Kim and Samantha Subin contributed reporting. More

Boston Fed President Susan Collins expressed support Friday for keeping interest rates elevated as the battle against too-high inflation continues.
A voting member this year of the Fed’s rate-setting group, Collins said “further tightening is certainly not off the table.”

Susan Collins, president of the Federal Reserve Bank of Boston, speaks during the National Association for Business Economics’ Economic Policy Conference in Washington, D.C., March 30, 2023.
Ting Shen | Bloomberg | Getty Images

Two Federal Reserve policymakers expressed support Friday for keeping interest rates elevated as the battle against too-high inflation continues.
In separate speeches, Governor Michelle Bowman and Boston Fed President Susan Collins said there’s still the possibility that the Fed will have to raise rates further if economic data doesn’t cooperate.

Bowman’s remarks were more pointed as she indicated that progress has not been sufficient in bringing inflation down to the Fed’s 2% target.
“I continue to expect that further rate hikes will likely be needed to return inflation to 2% in a timely way,” she said in prepared remarks to a bankers group in Vail, Colorado.
With the majority of the Federal Open Market Committee expecting inflation to remain above target through at least 2025, and her own expectation that progress in the battle will be slow, it “suggests that further policy tightening will be needed to bring inflation down in a sustainable and timely manner,” Bowman said.
For her part, Collins said the recent inflation data has been encouraging though it’s “too soon” to declare victory while core inflation excluding shelter costs remains elevated.
“I expect rates may have to stay higher, and for longer, than previous projections had suggested, and further tightening is certainly not off the table,” Collins said in prepared remarks for a banking group in Maine. “Policymakers will stay the course to achieve the Fed’s mandate.”

The commentary comes two days after the rate-setting FOMC decided not to raise rates following its two-day meeting. Both said they supported the decision.
Both Bowman and Collins are FOMC voting members this year. The federal funds rate is currently targeted in a range between 5.25% and 5.5%.
While choosing not to raise rates, officials indicated they still see one more increase coming this year, then potentially two cuts in 2024, assuming moves of 0.25 percentage points at a time.
“There are some promising signs that inflation is moderating and the economy rebalancing,” Collins said. “But progress has not been linear and is not evenly distributed across sectors.”
She also noted that the effect of monetary policy moves, which have included 11 interest rate increases and a more than $800 billion decrease in the Fed’s bond holdings, may be taking longer to make their way through the economy due to the strong cash positions of consumers and businesses.
However, she said the path to a soft landing for the economy “has widened” and said Fed policy is “well positioned” to achieve a decrease in inflation while not sending the economy into a recession. More